German construction workers seal inflation-busting wage deal

BERLIN (Reuters) - German unions and employers on Saturday agreed on an inflation-busting pay hike of roughly 6 percent for more than 800,000 construction workers, the strongest wage deal sealed so far this year in Europe’s biggest economy.

FILE PHOTO: A construction site at the river Spree is pictured in Berlin, Germany November 27, 2017. REUTERS/Hannibal Hanschke

For years, the European Commission and the International Monetary Fund have urged Germany to boost domestic demand by lifting wages and hiking investment, as a way to reduce the country’s large trade surplus.

The debate has heated up with the election of U.S. President Donald Trump, who has repeatedly criticised Germany’s export strength, while French President Emmanuel Macron has called on Berlin to wean itself off the “fetish” of fiscal conservatism.

The IG Bau union said construction workers in West Germany would get a pay hike this year of 5.7 percent, while wages in East Germany would jump by 6.6 percent. Both steps are backdated to May 1 and will last for 26 months.

“These were hard and tough negotiations that were on the verge of failure several times,” said Uwe Nostitz from the ZDB industry association.

The deal was reached after 19 hours of mediation by former Economy Minister Wolfgang Clement.

The agreement also includes one-off payments for workers in West Germany of 250 euros in November 2018, 600 euros in June 2019 and a further 250 euros in November 2019. Workers in the East will get a one-off payment of 250 euros in November 2019.

Construction workers, including apprentices, also receive an additional monthly salary that can vary from region to region.

The labour union had initially demanded an increase of 6 percent over 12 months while employers had offered 4.2 percent over 22 months and a one-off payment of 400 euros.

Still, IG BAU head Robert Feiger said he was satisfied with the result.

“That’s the highest wage deal sealed nationwide this year,” Feiger said, adding that the result ensured workers finally got their fair share of the economic boom.

The German economy is enjoying an unusually prolonged upswing, now in its ninth year, expanding by 2.2 percent in 2017. With employment at record highs, construction companies in particular are struggling with massive labour shortages.

German public sector unions in April reached a three-stage pay hike deal for a 3.2 percent pay rise backdated to March 1, a 3.1 percent increase from April 2019 and a 1 percent hike from March 2020.

In the industrial sector, the 3.9 million workers and their employers agreed in February on a deal for roughly 4 percent annual rises for 2018 and 2019.

The German wage deals are likely to bolster the European Central Bank’s confidence that salaries in the bloc’s largest economy are finally picking up, paving the way for a long-awaited recovery in inflation.